Your personal credit score is one of the most important factors that lenders look at when deciding whether to give you a business loan. A low credit score can make it difficult to get approved for a loan and can lead to high interest rates and other penalties. In this article, we discuss how to get a business loan with a bad credit rating in 2023. To work!
What do lenders consider bad credit?
A bad credit score is usually considered to be a credit score below 580. A bad credit score can make it difficult to get approved for a loan and can lead to high interest rates and other penalties.
Bad credit is often the result of missed payments, bankruptcy or the use of credit cards. To improve your score, you need to be proactive and make sure all your payments are on time and that you don’t overextend yourself.
What is the minimum credit score for a small business loan?
The minimum personal credit score for a small business loan is typically 500. However, the minimum score can be higher or lower depending on the lender. To increase your chances of getting a loan approved, try to maintain a good credit score and make all your payments on time. Building your business credit score can also help you get approved for a loan with better terms.
Is it possible to get a loan without a credit check?
It is possible to get a loan without a credit check. However, it’s important to note that most lenders require some form of credit check before approving business financing. This is because lenders want to make sure you are a low-risk borrower and have a good chance of paying back the loan. If you have a bad credit score, you may be able to get approved for a loan with a higher interest rate or through a more lenient lender.
Types of business loans available for borrowers with bad credit
If you have bad credit, there are still several options for bad credit business loans. Let’s take a look at the different types of loans available to you…
1. SBA Loan
The Small Business Administration (SBA) loans are government-backed loans available to businesses with bad credit. While interest rates may be higher than what you would get from a private lender, SBA loans are often more lenient and may require collateral.
2. Merchant Cash Advances
A Merchant Cash Advance (MCA) is a type of loan where the lender advances you money in exchange for a percentage of your future sales. MCAs are often more flexible than traditional loans and can be approved quickly.
3. Business lines of credit
A line of credit is a type of loan that allows you to withdraw money as needed up to a certain limit. Lines of credit can be used for working capital and usually have more flexible payment terms than other types of loans.
4. Loan of equipment
With an equipment loan you finance the purchase of business equipment. Equipment loans typically have lower interest rates than other types of financing and can help you get the equipment you need without using up a lot of capital.
Microloans are small loans typically offered to entrepreneurs who struggle to get approved for other types of financing. Microloans can help you get the money you need to start or grow your business.
6. Peer to Peer Lending
Peer-to-peer (P2P) lending allows you to borrow money from a group of individual investors instead of a traditional lender. P2P loans can be a good option for people with bad credit, as they often have more lenient terms.
7. Guarantee Loans
These are loans that are guaranteed by a close friend or relative, meaning they are liable for the loan if you default. Guaranteed loans can be a good option if you have a bad credit score, but it’s important to make sure your guarantor understands the risks.
8. Invoice Financing or Factoring
Invoice financing or factoring allows you to borrow money based on the value of outstanding invoices. This form of financing can be a good option if you need money quickly and have bills that need to be paid soon.
9. Business Credit Cards
Business credit cards can be a great option if you have bad credit, as they often have lower interest rates than other types of financing. However, it is important to pay off your balance in full each month to avoid high interest charges.
Crowdfunding is an increasingly popular way for small businesses to raise money. Crowdfunding allows you to get money from a large group of people who want to support your business.
How to get a small business loan with bad credit
Minimum credit score requirements vary from lender to lender, but there are still several steps you can take to increase your chances of being approved for a bad credit loan. Here are five tips for getting a small business loan with bad credit in 2023:
- Improve your credit score. The first step is to take steps to improve your credit score, such as paying off outstanding debts and checking your credit report for errors.
- Show proof of financial responsibility. Lenders want to know that you are responsible for your finances, so it’s important to provide proof of your financial responsibility, such as bank statements, tax returns, and balance sheets.
- Find the right lender. It is important to find a lender who is willing to work with you, even if you have bad credit. Research different lenders and compare their terms and rates to find one that meets your needs.
- Provide collateral. Some lenders may require collateral for a loan, such as equipment, real estate, or inventory. Providing collateral can help increase your chances of getting a loan approved.
- Look for alternative financing options. If you can’t get a loan from a traditional lender, consider alternative financing options such as microloans, peer-to-peer lending, crowdfunding, and more.
Bad credit business loans for startups
Online lenders are usually the best option for startups looking to get a bad credit business loan. Online lenders often have more lenient terms and less stringent requirements than traditional banks, making them a great option for startups. Let’s look at some options for getting business financing with bad credit:
1. OnDeck for short-term loans
With OnDeck, you can get a term loan from $5,000 to $250,000 with repayment terms of up to 24 months. You can also request more financing if you have paid at least half of the balance.
2. Bluevine for invoice factoring or financing
With a company like Bluevine, which partners with FundThrough to offer invoice factoring, you can free up money that is currently tied up in unpaid invoices. To qualify, you must have approximately $100,000 in annual sales, be in business for at least three months, and have a credit score of 530+.
3. Lendio for a business line of credit
With Lendio, you can get a business credit of between $1,000 and $500,000 in one day. However, the interest rate is between 8% and 60%, which is higher than traditional business loans.
4. Currency financing for equipment loans
CurrencyFinance offers loans to qualified borrowers of as much as $500,000 and up to 72 months of repayment terms. To have the most options with CurrencyFinance’s offerings, you must have a FICO score of 625 or higher and have been in business for more than 2 years.
5. Accession to microloans
Accion is a non-profit organization that offers microloans of up to $100,000 with interest rates as low as 5.99%. The beauty of Accion is that you can get a quote without affecting your credit score.
6. Credible for working capital loans
If you have poor credit and need quick cash to cover your day-to-day expenses, a working capital loan through Credibly may be a good option for you. However, to qualify, you must provide collateral of up to 90% of the loan amount.
7. Affordability for cash advances from sellers
With Payability, you can receive up to $250,000 in funding the same day you are approved. They work with companies from 180 countries in 38 currencies. What’s great is that there is no credit check.
8. Fast financing for business loans
Getting a small business loan through Rapid Finance is a simple, straightforward process and you can apply directly from their website. Their loan terms range from three to sixty months and you can receive money within hours of approval.
9. American Express Plum Business Credit Card
If you’re looking for something a little less traditional, consider a business credit card such as the American Express Plum Business Credit Card. This card offers the option to carry your balance for up to 60 days with no interest, no preset spending limit and more.
10. Personal Loans
Personal loans can also be a good option for entrepreneurs with bad credit. You can use them to fund your business as long as you use the money for business expenses and are responsible for making the payments.
Don’t let bad credit stop you from getting small business loans
It’s true that bad credit can make it harder to get a business loan, but that doesn’t mean it’s impossible. With some creativity and research, you can find options that work for your business. Whether through a traditional lender or an alternative source, you can get the money you need to grow your business. Don’t let bad credit stop you from making your dreams come true!